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Keeping insurance in areas prone to wildfires a challenge, new state data show

Kathleen Pender| on
August 21, 2019

Residences leveled by the Camp Fire in Paradise (Butte County) in 2018. Some rural areas with high fire risk are seeing a rise in insurers dropping customers.

Residences leveled by the Camp Fire in Paradise (Butte County) in 2018. Some rural areas with high fire risk are seeing a rise in insurers dropping customers.

Photo: Noah Berger / Associated Press 2018

Photo: Noah Berger / Associated Press 2018

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Residences leveled by the Camp Fire in Paradise (Butte County) in 2018. Some rural areas with high fire risk are seeing a rise in insurers dropping customers.

Residences leveled by the Camp Fire in Paradise (Butte County) in 2018. Some rural areas with high fire risk are seeing a rise in insurers dropping customers.

Photo: Noah Berger / Associated Press 2018

Keeping insurance in areas prone to wildfires a challenge, new state data show

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Insurance non-renewals are a growing problem for homeowners in high wildfire-risk parts of the state, according to data released Tuesday by the California Department of Insurance.

The report identified high-risk areas in a number of ways. It found a 6% increase in insurer-initiated homeowner policy non-renewals in Cal Fire State Responsibility Areas from 2017 to 2018. These are the areas where Cal Fire has the primary responsibility for fighting and preventing fires. It includes wildland-urban interface and forested areas, but excludes incorporated cities, agricultural lands (including most of the Central Valley) and federal lands.

In ZIP codes affected by the 2015 and 2017 wildfires, the department found a 10% increase in insurer-initiated non-renewals, it said in a fact sheet.

For the state as a whole, however, insurer-initiated non-renewals increased only 3.4% between 2017 and 2018, and actually decreased 3.9% between 2015 and last year.

“For most of our population, it won’t seem like a big issue,” said Joel Laucher, a senior consultant with the Insurance Department. For people in high-risk areas, “these are small towns, this causes so much strife. People have homes for sale and nobody even comes to look. They’ve heard about the price (of insurance) and the risk. For these people, it is a crisis because it has come on so quickly.”

Industry spokesman Rex Frazier said, “We didn’t think the fact sheet matched the data.” Between 2015 and 2018, the number of new and renewed policies statewide rose 1.8% and 1.7%, respectively. The number of policies not renewed by customers rose 1.8%, while there was a 3.9% drop in non-renewals by insurers.

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“If they want to say there is a change in the distribution of non-renewals, so it is more concentrated in certain areas, I guess they could make that statement,” said Frazier, president of the Personal Insurance Federation of California.

The department also reported that from 2015 to 2018, the number of new and renewed policies in the “voluntary market” fell by 8,712, or 4.5%, in the 10 counties with the most homes in high- or very high-risk areas. These are Tuolumne, Trinity, Nevada, Mariposa, Plumas, Alpine, Calaveras, Sierra, Amador and El Dorado.

Over the same period, the number of new and renewed policies in the five lowest-risk counties rose by 5,310, or 2.8%. Those counties — Yolo, Merced, Sutter, Imperial, and Kings — have roughly the same number of households as the 10 highest-risk counties.

The voluntary market refers to sales by licensed, mainstream carriers. When homeowners can’t get insurance from them, they have two options. They can turn to surplus lines carriers such as Lloyd’s of London, which are much less regulated by the state, or the Fair Plan. The Fair Plan is an association of state-licensed carriers and sells policies on their behalf to homeowners who have been rejected multiple times because of fire risk. Fair Plan policies cover fire but don’t cover theft, water damage and liability; homeowners must purchase a separate policy for those.

Most Fair Plan policies are sold in urban areas such as Los Angeles and Oakland. Statewide, the number of new and renewed Fair Plan policies fell every year between 2015 and 2018. But in the 10 highest-risk counties, they grew 177%.

“Nearly 57% of the new Fair Plan policies written are now written in State Responsibility Areas, up from 47% in 2015,” the department said in its fact sheet. “Between 2015 and 2018, the number of surplus lines policies in the State Responsibility Area increased by 49% (from 10,521 to 15,636).”

The department’s report did not cover insurance premiums, but they are also on the rise, especially in high-hazard areas.

“We have received over 100 rate increase filings in the last one and a half years from the industry,” Laucher said. “They are not large overall, typically just under 7%. The actual impact is much lower for people in urban parts of the state and significantly higher than that for people in these state responsibility or high-risk areas.”

He added that the premium increases are based on actual and projected losses. “They are actuarially sound. We have been approving 95% of the amounts requested by insurers because they have had back-to-back years of major losses and because most of those losses have come from particular types of wildfire sources or regions.”

State law requires insurance companies to give customers 45 days notice when they plan to not renew a policy. Insurance Commissioner Ricardo Lara has said he would like them to give 180 days notice, with a reminder between 45 and 60 days.

A bill in the Legislature, AB1816, would require 60 days notice starting next year. Frazier said his association supports the bill but thinks 180 days is too much because people forget.

In high-to-moderate risk areas, the non-renewal rate has held steady at around 2% between 2015 and 2018, Frazier said in a joint statement with the American Property Casualty Insurance Association. “Insurers remain committed to covering homes in rural and urban zones, despite paying out more than $26 billion in claims from the 2017 and 2018 wildfires. Those claims payments will rebuild and revitalize these communities,” they said.